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The Changing Role of the Travel Intermediary

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									SAJEMS NS Vol 3 (2000) No 2                                                      273


The Changing Role of the Travel Intermediary

B Lubbe

Department of Tourism Management, University ofPretoria


ABSTRACT

This article gives an overview of the changes and developments in the travel
industry and the way travel intennediaries like travel agents are responding to
them. These changes include the deregulation of airlines and the advent of global
distribution systems, the pressure from airlines for lower distribution costs, rapid
and fundamental changes in technology and consumer preferences. The responses
by travel agents include rapid integration and consolidation within the industry, the
use of technology to streamline operations and expand market reach, and the
review of traditional revenue models to make way for new approaches to revenue
generation. In conclusion, some future scenarios for both leisure and corporate
travel distribution are outlined.
                                                                           JELL84

INTRODUCTION

The worldwide tourism distribution system is experiencing major
transformation. The beginning of this transformation phase can probably be
traced to the deregulation of airlines and the advent of global distribution
systems, which initiated a period of greater accessibility and availability of
information to travel intermediaries, with concomitant benefits to the travel
consumer. The decrease in fares, and pressure from airlines for decreased
distribution costs have made travel intermediaries vulnerable in terms of their
traditional role as the link between supplier and consumer. Rapid and
fundamental changes in technology have enabled consumers to deal directly
with travel suppliers in an increasingly simple way, and this has proved a further
impetus for change in travel distribution. Together with these trends, consumer
preferences have also changed fundamentally. Travellers today seek different
types of experiences from their predecessors and this, together with greater
accessibility and availability of information, presents the travel industry with its
greatest challenges.

This article gives an overview of these agents of change and of how the travel
distributor and intermediary are coping with them. The article begins with a
274                                               SAJEMS NS Vol 3 (2000) No 2

review of the traditional chain of distribution and then examines the trends and
factors that are bringing about the changes to this traditional approach. Then it
examines the reaction of travel intermediaries to these changes, and the survival
strategies that they are implementing. The paper concludes with a possible
future scenario for tourism distribution.


THE TRAVEL DISTRIBUTION STRUCTURE IN SOUTH AFRICA

A traditional travel distribution system links the suppliers of travel products to
the end customers. This system can be described as a predominantly linear chain
of distribution, because it follows the traditional path from supplier to
wholesaler and/or retailer and fmally to consumer. The number of channel levels
may vary from simple, direct marketing where the supplier sells directly to the
consumer,called direct distribution, to complex distribution systems involving
several layers of channel members such as retail travel agents, tour
wholesalers/operators and speciality intermediaries, called indirect distribution.
The basic structure of the South African travel industry is graphically illustrated
in Figure 1. The public or consumers can be seen as the driving force - they
purchase travel services from retail travel agents or directly from the suppliers of
travel services. The tour wholesaler's role is that of consolidating the services of
airlines and other carriers with the requisite ground services into one package
that can be sold either through travel agents to the consuming public - or
directly. The legal and regulatory environment in which the industry operates
may be viewed from two perspectives: firstly, the role of the government and
other public bodies, and secondly, the role of industry associations such as
lATA (International Air Transport Association) and ASATA (Association of
Southern African Travel Agents).
SAJEMS NS Vol 3 (2000) No 2                                                       275

Figure 1     The basic structure of the South Mrican travel industry


                                            Government,
                                              ASATA,
                                            lATA, other
                                                             "-'·_--1
                                          ~--~----~                     i
                                                                        i
                                                  i                     !
            SUPPLIERS
                                                  I
                                                  ~
                                                                        I
                                                                        .
             Airlines
             & other
                                                Any tour                I
             carriers
                                        r+     wholesaler




            EJ               ---jGDS       I
             Other
                                                                 Retail travel
             destination
                                        L-----+-----Ir~          agent or other
             services
                                                                 retail outlet
                                                  I
                                                  I
                                ~I
                 '-------------.t ~
                 I              "·1
                                    I~          Public      1
                                                            1 -----'
                                                             ......




The role of the travel suppliers is to provide travel and transport related services
to consumers. Because of the intangibility of the tourism product, they rely on
the distribution of information. The information is stored in global distribution
systems (GDSs) such as Amadeus, Galileo, Sabre and Worldspan, and
disseminated to the consumer via the travel intennediaries, who are linked to
these GDSs. The last-mentioned have traditionally been the main tool used by
the travel industry to distribute information about air travel and other products,
such as package holidays, hotel accommodation and car hire.

Travel intermediaries may be divided into wholesalers and retailers. The tour
wholesaler buys different components of the tourism product, like
transportation, accommodation and sightseeing, from suppliers to create
packages that are sold via the travel agent to the consumer. The travel agent has
traditionally been the dominant sales channel· for airline and tour operating
276                                              SAJEMS NS Vol 3 (2000) No 2

companies. For many years, airlines have been dependent on travel agents to sell
their seats, with approximately 80% of all sales being done through travel
agents. This holds true even today, despite the growth in direct distribution
through the Internet.

  In 1998 there were approximately 71 international scheduled and non-scheduled
  airlines servicing South Africa. Before 1990, only 22 international carriers did
  so, which means that there has been a rapid increase in the number of new
  destinations accessible to the South African traveller. Thus between 1990 and
  1998, travel agents and tour wholesalers had to increase their range of products
 rapidly, and expand their information systems to meet the new demand.
  According to lATA, international airline ticket sales in South Africa through
 travel agents amounted to approximately R4 billion in 1996, while domestic
  airline ticket sales were approximately R2 billion in that year. In 1998, total
  airline sales through travel agents amounted to R8,45 billion. The number of
  domestic and regional airlines in South Africa has also increased during the last
  few years. South African Airways (SAA) remains the largest carrier, with other
  airlines, like British Airways/Comair, SA Express, Nationwide Air and SA
  Airlink, also serving the regional and domestic routes. Apart from government
. licensing, airlines are regulated by lATA.

The retail travel industry consists of licensed as well as unlicensed travel agents.
In 1998 there were approximately 1 000 travel agencies in South Africa, of
which 820 were licensed by lATA. These agencies range from independent
neighbourhood and small-town travel agencies to large organisations (e.g.
Rennies Travel) that are part of lSE-listed holding companies, like Bidvest.
Travel agencies may also be part of a national franchise like Sure Travel, which
has over 125 independent city outlets, or international franchises, like Harvey
World Travel. A number of airlines have provided franchising opportunities for
travel agencies (e.g. SAA City Centre travel agencies), and alliances are also
formed between local travel agencies and global partners. Examples are the
affiliations between Concorde Travel and the global giant Carlson Wagonlit, and
Rennies Travel and BTI (Business Travel International). While travel agencies
require lATA licences to issue air tickets, ASATA is the industry association
that represents the travel trade. The growth in the travel agency market, and the
importance of travel agents in South Africa, are evident from the increase in the
total number of airline sales processed through travel agencies: R3,6 billion in
1993 to R8,45 billion in 1998.

 The rapid rise in the number of destinations available to the South Afiican
 traveller since 1995, has compelled the travel trade to become quickly familiar
 with more countries than it ever had to deal with in the past. According to Satour
SAJEMS NS Vol3 (2000) No 2                                                   277

(Bayman, 1998), outbound overseas travellers in 1996 amounted to 549 379
persons, of whom 416041 were holidaymakers, 123 043 business travellers and
10 295 academics and others travelling for study purposes. In 1997 a total of
518 514 South Africans travelled overseas; 387408 (a drop of almost 7% from
1996) travelled on holiday, 120 890 on business (a drop of 1,75%) and 10 216
travelled for study purposes (a drop of 0,77%). At present there are
approximately 22 ASATA-registered outbound tour wholesalers in South
Africa, some of the larger being World Leisure Holidays, ATO, Thompsons
Tours, Beachcomber Tours, Absolute Tours and Travel Vision. The South
African Tour Operators Association (Satoa) represents the outbound tour sector
of the industry.

The inbound tourism sector has grown substantially since 1994, and according
to Caras (1998: 47-8) there are approximately 460 operators providing ground
tours in South Africa, about 15 of whom may be considered major players in the
sector. A Satour survey (Caras, 1998: 48) shows that 27% of the foreign visitors
to South Africa, over 300000 tourists a year, participated in organised tours - a
significant increase from the 17% in 1995. Inbound tour operators handled about
220 000 tourists in 1995. Two industry organisations, namely Satsa (the South
African Tourism Services Association) and Asinto (the Association of Inbound
Tour Operators), which is part of ASATA, represent the interests of the inbound
tour market.

Apart from the changes in South Africa's circumstances over the last number of
years, changes in the overall tourism industry have and are occurring so rapidly
that it is necessary to examine how distribution in travel is being impacted and
how transformation in the industry is taking place.


CHANGES IMPACTING ON TRAVEL DISTRIBUTION

Changes in three important areas can be identified as having the greatest impact
on the way in which travel is distributed. These are:
  • deregulation in the airline industry
  •   rapid advances in technology
  •   changes in consumer demand and behaviour


They are next discussed in turn.
278                                               SAJEMS NS Vol 3 (2000) No 2

Deregulation

Since 1978, when deregulation of the airline industry was introduced in the
USA, competition in this and related travel industries has burgeoned. This
increase in competition caused declining yields for many travel suppliers and a
subsequent squeeze on revenues, and ways were therefore sought to reduce costs
and increase market share and profitability. As far as airlines are concerned,
deregulation and increased competition brought about a number of changes,
which directly impact on travel distribution. These are:

The formation of alliances. The alliance trend amongst airlines began in the
mid-1980s. The main aim with alliances is to extend the market reach of
airlines, control costs and possibly limit competition in the global air transport
sector. While some concern has been expressed as to how alliances affect the
consumer, it can be argued that they have vastly extended passenger choice.
These alliances include collaborative pacts ranging from equity stakes to code-
sharing agreements, joint services, block seat or block booking arrangements,
joint marketing agreements, joint fares and franchise agreements (French, 1997).
Not only does South African Airways form part of a strategic alliance (the Star
Alliance) together with Lufthansa, United Airlines, Air Canada, SAS and Thai
Airways International, it also has various code-share agreements with other
carriers such as Singapore Airlines. SAA has also found an equity partner in
Swissair. Another South African airline, Comair, has a franchising agreement
with British Airways, the latter having bought a 18,3% share in Comair. These
alliances bring about changes in ticket distribution methods that directly affect
the retail travel industry in terms of preferred supplier relationships and revenue.
Franchising travel retailers as preferred suppliers of certain airlines are also very
much in evidence in South Africa, as the rapid growth of the SAA/Lufthansa
City Centre travel centres has shown.

A strong move to cut distribution costs. As the level of competition increases
airlines continue to look for ways to offset declining profits. This has resulted in
a move to reduce distribution costs, which represent 20-25% of total costs. This
move by airlines has resulted in the implementation of commission caps in the
USA. Commission cutting has started in South Africa, with SAA cutting
commission on international ticket sales from 9% to 7% and other airlines
following suit. Commission capping and other changes in commission structures
have severely affected the major source of travel agents' revenue, and will
continue to do so.

Introduction of more competitive and flexible fares. This has meant a decrease in
the cost of air travel to the consumer. New airlines increasingly enter the market
and compete with national carriers, traditionally protected by government
SAJEMS NS Vol 3 (2000) No 2                                                     279

subsidies and regulation. The flexibility of fares on the Johannesburg/London
route offered by British Airways, SAA and Virgin Atlantic is an example of the
wider range of options available to the consumer.

Introduction of airline loyalty programmes. A factor that should not be
underestimated in its impact on travel distribution, is the implementation and
growth of the so-called frequent flyer programmes. These are designed to create
brand loyalty among passengers, and according to Lewis and Talalayevsky
(1997) tend to reduce the use of travel agents. The frequent flyer passenger will
be inclined to deal as much as possible with a single airline (or airlines operating
within the same alliance, where frequent flyer points are transferable) for future
redemption of points. Frequent flyers will be tempted to .deal with the airline
directly, having decided beforehand on a carrier. Airlines have more information
on frequent flyers than other passengers, because it supports their marketing and
scheduling decisions, and they will want to make optimal use of such
information. This leads to strategies where the travel intermediary may be
bypassed in order for airlines to strengthen their relations with frequent flyers.

These trends in the airline industry have had a major negative impact on the
revenues of travel intermediaries, particularly of the travel agent.

Rapid advances in technology

The travel industry has used information technology for more than twenty years.
This technology has become indispensable in lowering the cost of business
processes such as reservations, accounting and administration, as well as
improving customer service, human resource and financial management. While
information technology is a key competitive weapon in the travel industry, it
also holds the biggest potential threat to the way that travel agencies operate and
even to their very existence. As travellers begin to make more of their own
reservations electronically, thus bypassing the travel agent, the role of the travel
agent will change towards a greater emphasis on advice and planning.

Information technology is making a significant impact on all organisations. In
the past five years, direct electronic communication with consumers has become
possible through the Internet, online services, and the use of telephones to
communicate directly with computers. According to Lewis and Talalayevsky
(1997), it is no longer in doubt that it will be possible to bypass intermediaries,
who are no longer necessary for the coordination and management of
information.
280                                                SAJEMS NS Vol 3 (2000) No 2

The Internet
The relatively low barriers to entry, the perception of a demographically
attractive and expanding international user base, and growing media attention,
have prompted a sharp rise in the number of Internet sites with a travel and
tourism focus. Using the Internet removes the limitations of time, place and
products. As more people become computer literate and familiar with the
Internet, travellers will increasingly start to make their own bookings for flights,
hotels and car rentals. The Internet provides a means of reducing costs by
removing intermediaries from the distribution chain and allowing consumers to
deal directly with travel suppliers. Olivier (1996) calls the bypassing of the
travel agent disintermediation. The Internet is one of the prime forces that could
bring about such disintermediation.

The cost to suppliers of receiving a customer's booking is the most compelling
issue here. According to Inkpen (1998) it has, for example, been estimated that
the cost of making a booking via a telephone service centre is around US$10,
and via a GDS around US$3.50. To secure that same booking via the Internet
costs only 25 cents. Intermediaries represent a substantial element of supplier
distribution costs. As their role declines, profit margins along the value chain
will be redistributed to producers and consumers. It has been estimated that over
100 million people would be on the Internet by the turn of the century (Olivier,
1996). The travel industry is not exempt from this trend, with increasingly more
hotels, airlines, tourist offices, et cetera, establishing themselves on the Internet,
which has also been used to auction 'late availability' airline seats. For example,
South African Airways held its first auction on the Internet in April 1997. Here
ten seats were auctioned on local commercial flights, with the
JohannesburglDurban seats going from R130 (as opposed to a normal single fare
of approximately R500) and the Johannesburg/Cape Town seats going for
around R260 (as opposed to a normal single fare of approximately R900).

Electronic ticketing
Some airlines offer travellers the option of booking flights without tickets. The
traveller obtains a boarding pass at the airport on confirmation of his or her
identity. Inkpen (1998: 71) describes e-ticketing as a CRS supported function
that can be used to book the following:
   • Airline seats sold directly to customers by the carriers themselves. British
       Airways/Comair has a system whereby passengers prebook their flight,
       pay by credit card and go directly to the check-in desk at the airport,
       where they are issued with a boarding pass on swiping their credit card
       and showing their acknowledgement, already faxed through to them.
       British Airways has a machine at Heathrow Airport that accepts standard
       credit cards for self-booking flights.
 SAJEMS NS Vol3 (2000) No 2                                                    281

   • Airline seats sold to customers via the travel agents. Travel agents have
     access to e-ticketing functions via their GDSs, which are connected to the
     airline's CRS. So, for e-ticketing to be possible from a technical
     standpoint, the airline's CRS and the travel agent's GDS must both
     support e-ticketing functions. Some reservations systems are introducing
     "electronic ticketing" into South Africa, which would enable travel agents
     to issue electronic tickets.

Intranets
Intranets are systems developed from the Internet, mostly private networks
owned by companies. These tailor-made networks can be accessed only by
company employees using a special password. The Intranet allows company
staff to make their own travel arrangements direct from their laptop computers
anywhere in the world. These systems are expected to be available in South
Africa from the year 2000.

Self-service kiosks
These are intelligent ATM-type machines activated by customers. They have a
link to suppliers' electronic distribution systems and provide direct access to the
consumer.

Smart card technology
Smart cards look like credit cards, but have a computer chip embedded in the
card that can. store, read and dispense large quantities of information on
command. People have come to expect a "travelling office" (Cole, 1996) that
will give them connectivity and technical support at every stage of their journey.

Telephone voice recognition
This is a system where computers "speak", which can be used by airlines and
other suppliers to answer enquiries about reservations, lost baggage, schedules,
et cetera.

Telephone conferencing
South African companies are increasingly using telephone conferencing and
international phone cards as cost-efficient ways of communication, .and an
alternative to international travel.

Paradigm shift
Webb (1997) suggests that technology is making it easier for travel distribution
channels to come under the control of powerful industries, for example, retail
grocery chains. Retail groups like Pick 'n Pay and Computicket have the critical
mass and technology to move into simple travel transactions. This is also seen in
282                                             SAJEMS NS Vol 3 (2000) No 2

acquisition of related companies or alliances with such firms (e.g. Rennies
Travel).

These pressures on the travel industry require a restructuring to meet the
demands of the future, that will be a challenge to their managers.

Changes in consumer demands and behaviour

Changes in consumer behaviour, expectations and values represent another of
the main forces behind the pace and direction of industry developments
(Andersen Consulting, 1998). In the leisure market, consumers are becoming
less satisfied with traditional holiday packages. "Mass tourism" has been
replaced by the so-called "new tourism", which is strongly emerging in South
Africa too. Mass tourism was the logical outcome of the key social, economic,
political and technological influences following WorId Warn. This fonn of
tourism began with the introduction of jet aircraft in 1958. Post-war peace and
prosperity, paid holidays, charter flights and cheap oil resulted in massive
changes in the tourism industry. Sun-worship, inexperienced tourists, the
availability of cheap package tours to attractive destinations and "plastic cards"
all boosted the demand for mass tourism. This is also called Mass Standardised
Rigidly Packaged (MSRP) tourism, because identical holidays were rigidly
standardised and mass-produced. The holidays were consumed en masse by a
seemingly identical group of mass travellers, with no consideration for the
environment, or the values and culture of the host society. Technology greatly
facilitated the development of mass tourism because it made possible the
standardisation, management and distribution of mass tourism services on a
global scale. By the 1970s and 1980s, mass tourism had become "best practice".

New tourism, which is in the process of emerging in South Africa, is
fundamentally different from mass tourism. New tourists are more experienced,
more "green", more independent, more flexible, more quality conscious and
harder to please than mass tourists. The previous generation of tourists wanted
only to go to a place and be able to prove they had been there, whereas new
tourists go on holiday to experience something different. Quality and value for
money are vital to them and they are spontaneous, unpredictable and hybrid in
their choice of holidays. They want to affirm their individuality and to be in
control. As familiarity with new technologies increases, the consumer
experiences an added element of control and convenience of how travel services
are bought. The industry is therefore seeing a shift from the traditional push of
products by travel suppliers to the pull of products by consumers, based on the
growing availability of transparent, easy-to-use technology (Andersen
Consulting, 1998).
 SAJEMS NS Vol3 (2000) No 2                                                     283

In response to these destabilising trends, travel intermediaries have reacted and
developed in three important ways. The fIrst is the consolidation of travel
companies through mergers, acquisitions, franchising and the formation of
consortiums. The second is through their increased use of technology to benefIt
both client and travel company. A third fundamental change that is taking place
in the way travel intermediaries do business, is the restructuring of their revenue
base, where a strong move is emerging away from the traditional revenue model
of commissions to a more flexible, service-fee model.


TRAVEL INDUSTRY RESPONSES TO CHANGES

Consolidation and integration of travel companies

  The increasing number of consolidations in the travel industry comes from the
  growing recognition of the benefIts of co-ordination of travel services in
  response to the challenges facing the industry. Travel intermediaries have shown
  more and more appreciation of the diffIculties they face in achieving the benefIts
  from the traditional chain of distribution and their position along this chain .
. Integration in the form of acquisitions, alliances, mergers, franchises and
  consortiums has followed a rapid path in the travel industry, both worldwide and
  in South Africa. Integration achieves three basic benefIts for organisations:

• Competitive advantage through speed and flexibility. Through integration of
  sophisticated technology, rationalisation is possible, and with a wider product
  range to offer the organisation's image is enhanced.
• Cost control through effIciency and rationalisation. Organisations achieve
  greater negotiating power with suppliers, save on fIxed costs, gain access to
  broader industry experience and have greater access to technology.
• Extending market reach through access to wider markets.

The fIve above-mentioned forms of integration are next discussed in turn.

Acquisitions: A good example of integration in the tourism industry is that of the
Tourism Investment Corporation Ltd (Tourvest Ltd), a company listed on the
Johannesburg Stock Exchange. The vision of Tourvest is to be one of the top 10
global tourism companies, and it has already acquired numerous companies in
the inbound and outbound tourism markets as well as related sectors. Tourvest
believes that the benefIts that accrue from its acquisitions are:
   • buying power
   • cross-selling within the group
   • sharing skills and expertise, thereby creating a Tourvest culture
   • un~form budget and business planning tools
284                                               SAJEMS NS Vol 3 (2000) No 2

   • central support providing strategic input and management support
   • integrated electronic product
   • implementation of a comprehensive database

Alliances: Alliances are a form of contractual agreement that allows two
organisations to benefit from each other's strengths (Kotler, Bowen & Makens,
1996). Local travel agencies are increasingly forming alliances with global
travel management organisations through which they gain access to international
systems. Examples of alliances formed in South Africa are Concorde Travel and
Carlson Wagonlit, which has 4000 outlets in 125 countries, and Rennies Travel
and BTI, which has 2750 outlets worldwide. These types of alliance provide the
consumer with more choices and a greater degree of security while travelling.
This puts pressure on the small independent travel agency, which does not have
the same purchasing power and credibility overseas.

Mergers: A merger can be defined as the combining of two or more entities
through direct acquisition by one of the net assets of the other, either friendly or
hostile, for cash or stock. A new corporate entity is not created, but a newly-
merged organisation resembles a new organisation due to changes that follow
the merger. A recent example (1998) of a merger in South Africa is that between
Beachcomber Tours, one of the largest tour wholesalers in South Africa, and
Creative Tours. Beachcomber Tours is a leading wholesaler of holidays to
Mauritius, and to expand on the Mauritius side of the business it bought Creative
Tours after splitting Beachcomber into two companies. The first company
remains Beachcomber Tours with its primary focus still on Mauritius, and the
second company, called Absolute Tours (and incorporating Creative Tours) now
focuses on the UK, the continent of Europe, Australia and South Africa.

Franchising: Traditionally the travel agency business has not been suitable for
franchising. It has always been a relatively low-revenue producing, low-income
business not able to support franchise fees, yearly service fees and other such
expenses. However, in a business environment that is becoming less and less
regulated. the travel agency industry is likely to experience a growth of nation-
wide and even worldwide chains. Independent agencies are increasingly feeling
the need to enjoy the benefits of strong advertising and a corporate image.

Intemationally~ franchising began in the travel industry in the early 1980s.
Uniglobe in Canada exemplifies this rapidly expanding business form. It was
founded in 1980~ has currently 850 units operating in North America and has
now started operating in South Africa too. Operation was launched in the United
Kingdom in 1990 and has rapidly expanded to 70 outlets. The core business is
the corporate travel agency market. In South Africa some of the more well-
known franchises are the SAA/City Centre franchises, Sure Travel and
SAJEMS NS Vol 3 (2000) No 2                                                   285

Concorde Travel. South African Airways, as an alliance partner of Lufihansa,
launched its SAA/City Centre travel agency franchising concept early in 1997.
The rapid growth since 1995 of the Sure Travel franchise, which has over 125
franchise outlets in South Africa, indicates the growing need for travel agencies
to link together to fonn strong management structures. Smaller independent
agencies increasingly feel isolated and disadvantaged in terms of buying power
and access to global services, hence the rapid growth of franchising.

Consortiums: Consortiums also provide small independent agencies with the
opportunity of increasing their buying and marketing power. For example, the
Independent Travel Agents Consortium (ltac) was launched in 1997 with a
membership of 49 travel agencies and a combined buying power between R500
and R600 million, with the aim of negotiating better deals for its members with
product suppliers (Bims, 1997). Although consortiums may be similar to
franchising in tenns of payment of membership and monthly fees and their aim
of increasing individual members' buying power, a key difference is that they
normally allow members to retain their own corporate identity and management
independence.

An interesting example of the combination of alliances, joint ventures and
franchising that can take place is provided by Rennies Travel. As already
mentioned, Rennies Travel have fonned an alliance with BTI. In 1997 they also
signed a 50-50 joint venture agreement with an Australasian company called
Harvey World Travel to develop a leisure-based travel franchise in South Africa.
They have also linked up with Computicket, the leisure retail company, to allow
Computicket to make foreign exchange transactions for foreigners (Getz, 1997).

According to Cole (1996) the future operation of the large, global companies
will be quite different from that today as a result of the consolidation of travel
agencies. For example, travel agents will become more specialised, with a vast
fund of data and experience to draw on for the traveller contemplating, say, a
safari or a scuba-diving expedition. Greater specialisation and a fuller range of
products also open the way to a fee-based revenue model.

The use of technology by travel intermediaries

Travel agents and other travel intennediaries have traditionally used infonnation
technology mainly for infonnation retrieval and reservations, electronic
ticketing and computerised back-office systems. GDS terminals are the major
information and booking tools used by travel agents for all types of travel
products. The major systems available to travel agents are Sabre,
Apollo/Galileo, Worldspan, Systemone, Amadeus and Abacus. In South Africa
Galileo is used by 90 percent of agents with Amadeus making steady imoads.
286                                               SAJEMS NS Vol 3 (2000) No 2

These GDSs are constantly providing extra tools to increase the travel agency's
efficiency. Windows interfaces have been developed that allow agents to move
between applications. Travel agents are also using technology such as CD-ROM
to enhance their selling of destinations. CDs are used as an alternative to
brochures. The installation of CD-ROM applications, whereby descriptions of
destinations can be done via colour photographs, sound and video clips, has
become necessary as increasing amounts of information are distributed. Another
way in which agents have improved their service, is by setting up satellites in
the offices of their bigger corporate clients, thus allowing immediate
discussions, advice and instant ticket issue to take place.

While travel agencies are under threat from the Internet, it also provides
additional business opportunities. An ever-increasing number of travel agents in
South Africa are gaining access to the Internet through their GDS. Some travel
agencies offer services on the World Wide Web, giving them a much broader
geographic consumer base than they could acquire by traditional methods.
Travel agencies on the Internet can receive bookings from clients through the
Internet and can either send tickets by post, by hand or electronically, or can
book the passenger on ticketless flights. Communication with suppliers can also
be done via e-mail. There are a number of electronic travel agencies on the Web,
such as Expedia, BIZTRAVEL.COM and THE TRIP.COM. Internationally, the
travel industry has been active and aggressive in deploying consumer-oriented
eCommerce applications focused on the distribution aspects of travel services ..
As a result most of the leading travel providers, GDSs and travel agents have
now established sites enabling consumers 'to obtain information and, in many
cases, book and pay for tickets via the Internet (Andersen Consulting, 1998). In
South Africa the leading company in the sphere of Web-based travel is eTravel,
closely pursued by Leisure Travel and Computravel.

A new agency revenue model

Historically, travel agencies have earned their revenue through commission paid
to them by suppliers such as airlines, hotels, car rental companies and other
service providers. This revenue was sufficient to cover the agencies' fixed and
variable costs. However, traditional commission rates are giving way to fees
based on value-added services (paid by the traveller). This will transform the
travel agent into an agent for the traveller rather than for the travel provider. The
shift away from commission-based revenue to fees, is becoming increasingly
important with distinction being made between fees charged for handling
corporate accounts and fees relevant to individual travellers. Dr Robert Joselyn,
President and CEO of Joselyn, Tepper & Associates, Inc. in Arizona, suggests
that fees should be charged for the following services:
SAJEMS NS Vol 3 (2000) No 2                                                     287

    • Those which do not generate income commensurate with cost of service
      or investment in service.
    • Those where the agency is capable of adding value.
    • Those where customers view fees and service charges as fair and
      reasonable.

Where the small business account and leisure traveller are concerned, and with
constant emphasis on the right kind of service, Joselyn proposes fees such as:

   •  Penalty charges that are designed to recover costs and/or to compensate
     for lost income from efforts which have already incurred cost, or to
     compensate for costs incurred for redoing work already done.
   • Service fees for performing services (generally a combination of time
     and transaction expertise/capability) for which no income or inadequate
     income is anticipated.
   • Professional fees for experience and expertise that are either not
     compensated, or inadequately compensated.

The fee structure for corporate accounts should be negotiated with corporate
clients on a contractual basis. Revenue from corporate accounts can range from
commission to the agent (with commissions and overrides from preferred
suppliers going to the agent only), a fixed management fee structure or profit
sharing between the corporate account and the agent. Other agreements or
variations of these types of fees can also be negotiated based on the types of
service required.


A FUTURE SCENARIO FOR TRAVEL DISTRIBUTION

Rapid technological advance has brought about new electronic distribution
channels like the Internet, personal digital assistants, self-service kiosks and
interactive television, which have enabled the consumer to reach the supplier
directly and, in so doing, to bypass traditional distribution organisations like the
travel agent. These electronically based channels have also provided the
consumer with a greater choice of products. The use of these new channels
depends on consumers' technological know-how and traveller sophistication.

Andersen Consulting (1998) suggests that in future, these new channels will run
parallel to the traditional channels of distribution, with customers selecting the
channels according to the complexity of the travel experience and its occasion or
purpose. The retail travel agency as we know it today, will all but disappear in
the transformed corporate travel distribution system. According to Andersen
288                                                SAJEMS NS Vol 3 (2000) No 2

Consulting (1998) there will be a move towards self-booking where the
individual business traveller makes direct contact with the GDS or the supplier
inventory system, particularly if travel arrangements are relatively simple. This
will be done through corporate Intranets accessible via personal computers,
personal digital assistants or telephones using voice recognition systems.
Journeys and itineraries that are more complex will still require the services of a
travel consultant. The travel consultant will no longer be an "order-taker" but an
adviser and consultant in the true sense of the word, providing information and
advice and adding value to the travel transaction. For corporate travel, where
large travel accounts are handled, global travel management companies will
emerge to replace the traditional retail travel agency. These companies will
serve the needs of their clients by managing their travel portfolios. Traditional
sources of revenue, such as commissions, will no longer apply and global travel
companies will work on a basis of client fees. The model for leisure travel will
be more complex, with traveller sophistication, technological know-how and
buyer values determining the future "look" of distribution. Similar to the
corporate market, the traveller with a relatively simple itinerary will tend to
bypass the retail travel agent and book directly with the supplier through
personal computers, television and self-service kiosks. When travel is more
complex, Andersen Consulting (1998) suggests that distribution will be split
along direct and traditional channels. Travel that was previously regarded as
complex will become increasingly simple, as packages are developed that
reduce the complexity of travel. Consumers are increasingly able to access
information previously regarded as complex but now becoming relatively simple
to access online. However, leisure travellers will continue to rely on retail travel
agents offering value-added services to assist in planning more complex,
adventurous itineraries. In such cases, travellers will still choose to visit a retail
travel agent's shop to obtain advice in a face-to-face context.


SUMMARY

This article looked at the trends that are emerging in the travel industry, with
particular reference to travel agencies. It is evident that the industry is currently
experiencing probably its greatest changes and challenges since the 1960s.
Travel agencies began as independent organisations serving a relatively simple
market, but greater specialisation in types of travel, more discerning travellers,
the deregulation of airlines and tremendous technological advances have
resulted in the growth of complex alliances, partnerships and franchises. Not
only are these trends posing a threat to the small independent travel agency, they
are also fundamentally changing the traditional chain of distribution. The
distribution system will look different in the future, with mUltiple channels
running parallel to one another and serving different market segments.
SAJEMS NS Vol 3 (2000) No 2                                           289

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